Wednesday, 20 June 2012

Last chance for Pattison's

Many creditors weren't happy when the liquidators said the negotiations with the syndicate had failed and began preparing to sell off Pattison's assets. They went to court to try to force a meeting of creditors which would decide whether to proceed with the sale to the syndicate. The liquidators were opposed, arguing more money would be realised by breaking up the company than by selling it as a going concern.

But it wasn't quite as simple as that. The stumbling block was the British Linen Bank. They wanted their money. In full and in cash.

"(Before Lord Stormonth Darling)
Pattisons' Affairs.
Lord Stormonth Darling heard counsel on the note presented by William Higgins, junior, Belfast, and others, creditors of Pattisons Limited to the extent of £130,000, asking the Court to convene a meeting of the creditors of the company in order to ascertain their wishes in reference to the scheme for the realisation of the company's assets to a London syndicate. The petitioner further asked that the liquidators should be directed to continue the business of the company for a sufficient further period to enable the report of the creditors' meeting to be submitted the the Court, and the business to be handed ever to the syndicate, if that should be decided upon, as a going concern. The answers of the liquidator to the note were also before his Lordship. In their answers the liquidators opposed the prayer of the note, and stated that if the scheme were adopted the assets would realise £377,000 while if it were not adopted the estimated realisation would amount to £381,000.

. . . . .

Lord Stormonth Darling said he understood the Solicitor-General to say that the syndicate were still willing to carry out the agreement as finally submitted by them even although that should involve some change in favour of the bank.

Solicitor-General replied that that was his interpretation, and that was the feeling upon which the creditors whom he represented had proceeded. The sum of £345,000 mentioned in the answers was arranged on the footing that it would give creditors 13s 4d in the £1, plus the expenses of the liquitation, it having been agreed that the debt of the creditors could not come up to £500,000. The meeting of creditors who empowered the presentation of this note represented £256,000. He noticed in the answers that it was said they represented less than £120,000, but he held in his hand a detailed list giving the names of those present and the amounts they represented, and totalling up to £256,000. That was a very substantial nurmber of creditors, and there were no creditors appearing against him in this matter. He summarised the position thus. Negotiations had gone on for several months that the dispute between the liquidators and the syndicate was narrowed to one point, and then all at once the business was stopped and the whole thing thrown over. On 13th May the travellers got notice that their services were dispensed with from that day. This was a business which to a very large extent depended upon travellers, and, of course, the syndicate would never dream of buying the business if when they came in they were to find that the travellers were scattered and that their services bad been secured by other competitors. With regard to the question of security, he pointed out that the liquidators had got exactly what was asked - a letter that the Ocean Corporation were likely to come under an obligation. It was not suggested that the Ocean Corporation was not an excellent and indisputably sound corporation for the amount, and the guarantee had gone as far as they were asked. The security was "given such adequate security for the due payment of the remaining instalments as the liquidators may with the sanction of the Court, require." And there was a very good security in: addition. that the new company was not to get delivery of the assets until the instalment was paid and adequate security in terms of that got. He asked, did the other side object to the creditors being convened? Having got no answer to that, he assumed that the liquidators were objecting to creditors to the extent of £250,000 being authorised to meet and consider that matter. He asked his Lordship to authorise that meeting of creditors, men representing £250,000, that they, might consider what was to be done about their money.

. . . .

After lunch, Mr Camzpbell. Q.C., replied on behalf of the liquidators. His clients, he said, had no desire whatever to obstruct any scheme of arrangement which they could conscientiously recommend to the creditors and to the Court. On the contrary, they had all along frankly expressed their view that this was a case in which it was most desirable, in the interests of everybody, that a scheme should be carried through, and so frank had the liquidators been upon the subject that the creditors took alarm that their interests might suffer. His Lordship might remember that the Supervision Order in this case contained a very unusual clause, a clause which was adjusted by the Court with the view to protecting the interests of the creditors against any over-zeal on the part of the liquidators in the direction of a scheme of rearrangement. Actually they found that in answer to the very last note in which the liquidators asked leave to carry on the business, Mr Brickmann, one of the present petitioners, averred that the business Of Pattisons Limited was at present being carried on by the liquidators at a loss. That was quite true. The liquidators, who had a great deal more thorough knowledge of the pros and cons of the business, and with a desire to facilitate and carry out a scheme, were unable to tell the Court that any workable scheme had been adjusted, and they were satisfied that to grant the prayer of the petition would be most injurious to the great majorit of the creditors. There was a point which was material, although the Solicitor-General did not seem to think it was. The liquidators thought it their duty, in the last paragraph of their answers, to make a statement as to information they had received in connection with underwriting, and the Solicitor-General said it was correct. There was nothing improper or wrong in their entering into an underwriting contract, but, obviously, if it were true that one of the creditors entered into such contracts it gave him an interest in the scheme entirely different from his pure interest as a creditor, because he had entered into a speculatiom - a perfcetly legitimate one - in the floating of the new company. The scheme was defective in two or more points. For their £100,000 of debt the British Linen Company had a heritable security over certain of the works, and the suggestion of the scheme of arrangement was that the bank should be asked to take Debentures in the new company which was to be floated instead of their security, and that they were to take Debentures for a less amount than the amount of their security. He had a letter, dated 28th May, from the manager of the bank, in which the manager said the position of matters seemed to be that the bank at present hold a bond for £100,000 over the brewery and warehouse, two most valuable properties, and they were asked to give that up in exchange for £91,600 of the Debenture stock in the proposed new company, about which they had no information. How the £91,600 was arrived at he did not know. If that was the proposition, the manager said, the bank had no hesitation in declining it. The consent of the bank ws necessary to any effective step being carried through, and the bank had also a very large vote as an unsecured creditor. The propounders of this scheme had been warned that the bank would not consent and that arrangements must be made to carry the bank with them. The liquidators had no interest in the matter except that they would not, and could not, consent to any scheme which was defective in that main and essential point. If the liquidators could have foreseen the course of the negotiations they would never have consented to this unfortunate delay, but would have realised in the month of March. Their experience showed that they could not, and ought not, in the discharge of their duty rely upon the promises of the syndicate. If the Solicitor-General would undertake within a specific time, say a week, to approach the bank and to settle this difficulty with them, the scheme might go on. The liquidators here had very considerable difficulty in obtaining the judicial deposit, and yet the Solicitor-General, on behalf of the syndicate, whom he did not represent, told them that whatever cash was required would he readily forthcoming.

. . . .

The Solicitor-General replied that he was not able to enter into the details of the scheme, but he would like to say that the British Linen Company Bank was not entitled to say that they would not agree, and there was an end of the matter. The law was that the bank could be compelled to agree with the majority of the creditors. Besides, the bank would be amenable to public influence, and if the meeting of creditors held a certan opinion, the bank in its own interest would be willing to consider that opinion. The procedure at the meeting of creditors might be that the sense of the meeting would he gathered, and a small representative committee appointed to meet the bank on the one hand and confer with the syndicate on the other. That would occupy a few days. They did not wish to cut out the liquidators, but as they said the negotiations were at an end, the creditors came in and asked to be allowed to see what they could do. His clients were so anxious about the matter that they would endeavour to carry out the negotiations within a fortnight. Lord Stornmonth Darling said he would consider the matter, and give judgment to-morrow (Saturday) morning."
Glasgow Herald - Saturday 20 May 1899, page 13.

It was the prospect of the staff - in particular the travellers (salesmen) - being laid off that meant the creidtors had to act quickly. Once they were gone, breaking up the company and selling the assets was inevitable.

Actually, it all came down to the British Linen Bank. They were in the best position of all the creditors. Though they were owed £100,000, they had the brewery and warehouse - which were worth more - as security. They were certain of getting their money when the assets were sold. Unlike the unscured creditors, who would have to make do with what was left after the bank had taken its share.

You can understand why the bank might not have been too impressed at the thought of only getting £91,600. And not in cash, but in debentures in the new company. But compared to the other poor creditors, that was still a good deal. Unsecured creditors were only being offered 13s 4d in the pound (66%) of their debts.

It's clear that the British Linen Bank had a lot of influence over the liquidators. I'm not sure why. They appear to have acted in the bank's interest rather than that of the creditor's as a whole. But, as recent events in the banking world have demonstrated again, you can't trust bastard banks.

What happened next? There was one more appearance of the creditors in the court. We'll learn about that next.

1 comment:

Ed said...

I like the 'big boom' in the picture.